In April, the European Commission and 10 EU national competition authorities (NCAs) published the results of a coordinating monitoring exercise carried out in the online hotel booking sectors in 2016. The participating authorities sent questionnaires to a sample of 16,000 hotels in ten EU Member States, 20 online travel agents (OTAs), 11 metasearch websites and 19 large hotel chains.

The purpose of the exercise was to assess the effects of the antitrust enforcement measures adopted in recent years in this sector, which have led to changes to the so-called 'wide parity clauses' used by OTAs in their contracts with hotels. The monitoring exercise assessed whether the Europe-wide removal in July 2015 by Expedia and Booking.com of certain 'parity' or 'most-favoured-nation' clauses in their standard contracts with hotels has affected pricing and commission rates in the sector.

In short, 'wide' parity clauses oblige hotels to give the OTA the lowest room prices and best room availability relative to all other sales channels, whereas 'narrow' parity clauses allow the hotel to offer lower room prices and better room availability on other OTAs and on offline sales channels, but still allows the OTA to stop the hotel from publishing lower room prices on the hotel's own website. These measures were intended to promote competition between OTAs, by allowing hotels the possibility to offer differing room prices to different OTAs.

The German competition authority also prohibited all parity clauses used by HRS (a major German OTA) and by Booking.com (including narrow parity clauses). In addition to these antitrust measures, in France, the so-called Loi Macron rendered null and void all OTA price parity clauses and, in Austria, all OTA parity clauses were rendered null and void by an amendment to the law on unfair competition.

Key Findings of the Report

The European Commission notes that the measures applied to the parity clauses have generally improved conditions for competition and has led to an increased price differentiation between OTAs in most of the countries.

Taking a closer look at the results however, the vast majority of hotels (79%) said that they had not differentiated prices between OTAs since Booking.com and Expedia switched from wide to narrow parity clauses. The most common reasons given for this were that the hotels saw no reason to treat OTAs differently because the contract did not allow it; for fear of penalisation by the OTA not given the best price (e.g., lowering its ranking in the OTA's search results); the difficulty of managing different prices on different OTAs or because they did not want the hotel’s own website to appear more expensive and thus divert sales from the hotel's direct channel to OTAs.

In addition to the surveys sent to hotels, the European Commission and participating NCAs also analysed the prices on major metasearch websites, such as Trip Advisor, Trivago, Google and Kayak. The results of the data exercise were more positive and showed that the switch from wide to narrow parity clauses, the prohibition of parity clauses in Germany and the Loi Macron all resulted in an increase in room price differentiation.

The antitrust remedies (narrow parity and prohibition of parity clauses) also sought to promote competition between OTAs by allowing hotels to differentiate between OTAs in respect of the type and number of rooms they offer (room availability). Among the hotels responded to the survey, 69% of them said they had not differentiated between OTAs regarding room availability in the period since Booking.com and Expedia switched from wide to narrow parity clauses.

Part of the competition concerns identified by the national investigations of OTA parity clauses was also that these clauses reduce the incentive for OTAs to compete on the commission rates they charge to hotels. So far, the antitrust remedies seem to have had only a limited effect on the level of commission charged by OTAs. According to evidence obtained from certain OTAs, the average effective rate of commission paid by hotels remained relatively stable or only slightly decreased. Further, only 3% of hotels said that they had granted better room availability to an OTA in return for a lower commission rate.

Limitations of the Report and Next Steps

The monitoring exercise was carried out only 12 months after Booking.com and Expedia switched to narrow parity clauses, and six months after the adoption of the most recent prohibition decision in Germany (against Booking.com).The sector might therefore not yet have fully adapted to the changes made to the major OTAs' parity clauses. This seems to be corroborated by the fact that almost half of the hotels (47%) were unaware that Booking.com and Expedia had recently changed or removed their parity clauses.

The European Commission and NCAs have therefore agreed to keep the online hotel booking sector under review and to re-assess the competitive situation in due course. This will allow the sector more time to make full use of the measures that have already been taken. In any case, new enforcement actions or market investigations in the online hotel booking sector will be coordinated at the EU level.

The Competition Commission in Hong Kong will undoubtedly monitor any upcoming enforcement actions in the sector, especially if the removal of wide-parity clauses lead to an increase in price competition between OTAs – as the monitoring exercise seems to suggest. What is certain is that the effects on competition from parity clauses in the online hotel booking sector are a space to watch.

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